[Asia Economy Reporter Jeong Hyunjin] Micron, the third-largest player in the DRAM market, a representative memory semiconductor, announced on the 25th that production at its local factory was disrupted due to an earthquake in Taiwan. Generally, production disruptions in semiconductor companies act as negative factors. A typical example is Samsung Electronics, which suffered damages worth 300 to 400 billion KRW after halting operations at its Austin plant earlier this year due to a cold wave in the United States.
However, following the announcement, Micron's stock price closed up by more than 1% that day. This was because the slight reduction in Micron's DRAM shipments was seen as helping to rebalance supply and demand in the currently oversupplied market, potentially driving semiconductor prices back up. The market had been concerned about price declines caused by DRAM supply exceeding demand.
In this situation, domestic leading semiconductor companies such as Samsung Electronics and SK Hynix, known as "memory semiconductor powerhouses," could not smile despite recording their highest-ever sales in the third quarter of this year. This is due to concerns over the downturn in the memory semiconductor market, their main product, from the fourth quarter of this year through the first half of next year. There is significant uncertainty caused by global supply chain issues due to parts shortages and logistics difficulties, rising raw material prices, and COVID-19. Samsung Electronics stated, "There is great uncertainty about the memory market next year," and SK Hynix said, "We will respond conservatively to DRAM until the first half of next year."
DRAM Contract Prices Fall for the First Time in a Year...Short-term Oversupply Concerns
The reason semiconductor companies have expressed concern is the clear downward trend in DRAM prices. According to DRAM Exchange's announcement on the 29th, the fixed contract price for PC DRAM (DDR4 8Gb 2133MHz) in October averaged $3.71, down 9.51% from the previous month. This is the first time in a year since DRAM prices fell 8.95% in October last year and represents the largest drop since July 2019 (11.18%).
DRAM fixed contract prices show large fluctuations at the beginning of each quarter because companies enter into long-term contracts quarterly. This year, price increases of 5.26% in January, 26.67% in April, and 7.89% in July were recorded. Through this, prices had surpassed the $4 mark until last month but have now fallen back to the $3 range. The main reason for the price decline is interpreted as PC manufacturers, the largest customers of memory semiconductors, having accumulated inventory. This means supply was sufficient, leading to inventory buildup and subsequent price drops.
The fall in DRAM prices is also analyzed to be partly due to oversupply caused by semiconductor customers' production disruptions leading to decreased semiconductor demand, resulting in supply exceeding demand. In response to the expected DRAM price decline from the fourth quarter of this year, SK Hynix stated during its earnings announcement on the 26th that it plans to take a conservative approach to business until the first half of next year and respond accordingly. This is interpreted as an effort to reduce supply to prevent prices from falling further and to avoid prolonging the downcycle.
Do Hyunwoo, a researcher at NH Investment & Securities, said, "(SK Hynix) stated that if negative signs in customer demand are detected, they will reduce DRAM shipments and prioritize profitability over market share when deciding next year's capital expenditures," adding, "If this plan materializes, the DRAM price decline next year will be short-lived, and supply-demand conditions could improve in the second half of next year."
Will Prices Rise Again in the Second Half of Next Year?
Ultimately, Samsung Electronics and SK Hynix have announced that they will respond flexibly to these uncertainties going forward. Samsung Electronics, during its third-quarter earnings conference call on the 28th, said, "Due to high uncertainty, fourth-quarter investments are under review," and unusually did not provide an annual capital expenditure forecast. SK Hynix also explained regarding DRAM, "If demand changes occur due to market uncertainties, we will focus on securing profitability in the fourth quarter as well as the third quarter through flexible responses."
Industry experts expect that the downcycle will not last long because the industry is actively responding and overall demand for semiconductors is expected to increase in the mid to long term. Despite significant macroeconomic uncertainties, market experts foresee that supply and demand will be adjusted through shipment reductions until the first half of next year, allowing prices to return to an upward trend from the second half of next year.
Han Jinman, Vice President of Samsung Electronics' Memory Business Division, also said during the earnings announcement, "When looking at whether the recent parts shortage is due to total parts production volume or a mismatch in supply chain management, it appears to be more due to the mismatch. We expect a solution to emerge in the short term," adding, "We anticipate the situation will ease from the second half of next year." SK Hynix emphasized, "Global supply chain issues may actually become a form of pent-up demand, solidifying next year's demand," and stressed, "It is necessary to understand this phenomenon from the perspective of supply flexibility."
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